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Thursday, August 11, 2016

Unjustified threat, genuine step, or misleading or deceptive conduct: where is the line?

By Lauren John, Associate

A patentee should be alert to the dangers of firing off a communication which threatens a person with patent infringement proceedings – as the saying goes, it may come back to bite you. Where a person makes unjustified threats of infringement proceedings, the Patents Act 1990 (Cth) allows action to be taken against the person. We consider two recent Federal Court cases which shed light on the sorts of communications that are likely to land a patentee in trouble.

The cases, CQMS Pty Ltd v Bradken Resources Pty Limited [2016] FCA 847 (Case 1) and NSL Engineering Pte Ltd v Australian Mobile Mining Equipment Systems and Accessories Pty Limited [2016] FCA 614 (Case 2), give guidance as to what constitutes an unjustified threat. Case 1 considers the impact of the Civil Dispute Resolution Act 2011 (Cth) (CDRA), and in particular the obligation imposed on an applicant in civil proceedings to file a genuine steps statement, on the application of the unjustified threats provision. Case 2 serves as a warning that the allegedly threatening communication may also be found to constitute misleading or deceptive conduct in contravention of the Australian Consumer Law (ACL).

What are unjustified threats?


Section 128(1) of the Patents Act provides that, where a person, by means of circulars, advertisements or otherwise, threatens a person with infringement proceedings, or other similar proceedings, a person aggrieved may apply to a court for a declaration that the threats are unjustifiable, an injunction against the continuance of the threats, and the recovery of any damages sustained as a result of the threats. The Designs Act 2003, Trade Marks Act 1995 and Copyright Act 1968 each contain similar provisions.

A communication may be a threat even if it contains no direct reference to infringement proceedings. Whilst the mere notification of the existence of a patent, or a patent application, does not constitute a threat of proceedings for the purposes of s 128 (see s 131), courts have traditionally construed the unjustified threats provision broadly. Far from limiting application of the section to catching threats founded on baseless allegations, or threats which vastly extend beyond the scope of what is protected by the patent, as these cases demonstrate it is not a defence to show that the threats were made in the genuine belief that the conduct referred to in the threat was or would be an infringement. Accordingly, the only defences available to a patentee in relation to a unjustified threats claim is to successfully argue that the impugned conduct was not a 'threat', or to prove that the conduct of the threatened person was or would be an infringement of a valid claim.

Case 1: CQMS v Bradken – Unjustified threat or genuine step?


CQMS commenced proceedings against Bradken alleging infringement of a standard patent and an innovation patent for inventions relating to the mounting of excavator teeth adaptors to excavator buckets. After finding that no infringement of either patent had been demonstrated, Justice Dowsett considered Bradken's unjustified threats claim. Bradken alleged that threats were communicated in letters and emails from each of CQMS's patent attorneys and solicitors to Bradken, and from CQMS itself to customers and potential customers of Bradken. Justice Dowsett found, in each case, that the correspondence was capable of being construed as threats of infringement proceedings, but that was not the end of the matter.

CQMS argued that, since Bradken had commenced and prosecuted infringement proceedings, it was no longer an 'aggrieved person' for the purposes of s 128. Justice Dowsett referred to an earlier Federal Court case, Sydney Cellulose v Cecil Comfort Home Insulation, which cites passages from various English authorities on the subject, and which seemingly carries the suggestion that damage is only liable to be caused by threats which remain unaccompanied by infringement proceedings. His Honour made two observations which he said undermined the authority of the cited passages: (1) at the time of the decision in one of the English cases cited, the relevant legislation in England (and in Australia) provided a defence to an allegation of unjustified threats where the person threatening, with due diligence, commenced and prosecuted infringement proceedings; and (2) the enactment of the CDRA.

Acknowledging that the unjustified threats provision does not sit comfortably alongside the obligations imposed on an applicant in civil proceedings by the CDRA, Justice Dowsett said it may be necessary for the Court to distinguish between genuine steps taken to resolve a dispute and threats of infringement proceedings. Further, his Honour said that particular conduct may be both a genuine step and a threat, and that in those circumstances, the court may have to decide whether the conduct is actionable as a threat, having regard to the policy and effect of the CDRA.

Justice Dowsett held that the patent attorneys' letter, which was effectively a letter of demand, was a threat of infringement proceedings. By contrast, his Honour said that the first solicitors' letter, which primarily concerned the mechanics of a proposed conference called for the purpose of resolving the dispute, and the second solicitors' letter, which sought to clarify the allegedly infringing products, were written in good faith, and Bradken would have understood that the letters were genuine steps and not threats (despite both letters referring to the earlier letter from the patent attorneys). In those circumstances, his Honour said that neither letter contained a threat. Justice Dowsett said that the email sent to Bradken's customers (on the day proceedings were commenced) was a threat of future action against customers and the subsequent email was clearly a threat to customers or potential customers.

Case 2: NSL v AMMESA – Beware the ACL


NSL supplies the 'RAM Revolver'; a spreader product used to load the contents of a container into the hull of a ship. AMMESA owns an innovation patent for an apparatus "for delivering bulk material from a cargo container to a designated area by tipping the cargo container". AMMESA, through its patent attorneys, sent five letters – two addressed to entities related to NSL and three addressed to unrelated parties who were using or trading in the RAM Revolver – alleging that the RAM Revolver infringed its patent. In addition to claiming for unjustified threats, NSL alleged that the letters sent to the three unrelated parties constituted misleading or deceptive conduct in contravention of s 18 of the ACL.

AMMESA defended the allegations of unjustified threats on the basis that the sale and use of the RAM Revolver involved infringement of its patent. Justice Jessup held that, because the RAM Revolver did not have all of the essential integers of one or more valid claims and therefore did not infringe, the threats were unjustified.

Under the ACL, NSL alleged that the relevant representation was that the RAM Revolver had all of the essential features of one or more valid claims of the patent, and that the RAM Revolver was a product of which AMMESA had the legal right to prevent the sale in Australia. Justice Jessup considered that the terms of the letter made good NSL's claim, notwithstanding his Honour's acknowledgement that the contents of the letter might be regarded as no more than a 'tentative opinion'. Justice Jessup said that the demands contained in the letter carried the 'strong impression' that the addressee was, by dealing in the RAM Revolver, infringing at least one of the patent's claims and this (as it turned out) was misleading.

Take-home points


A patentee should, where possible, obtain advice on infringement and validity of the patent before making any communication capable of being construed as a threat of infringement proceedings. Particular care should be taken when drafting any communication intended for an alleged infringer’s customers, as such communications may expose a patentee to penalties under the ACL if found to be misleading or deceptive. Finally, patentees should consider invoking the assistance of the CDRA to defend a claim for relief against unjustified threats.

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